Tesla's Low-Cost Home- and Commercial-Battery Systems
May 2015

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Both established battery companies and newer players such as Tesla are targeting emerging stationary-energy-storage markets. These markets offer significant prospects for growth for companies with expertise in electric-vehicle and portable power and present opportunities for further expansion of Li-ion batteries' dominance in energy-storage markets.

Description

In April 2015, electric-vehicle-manufacturer Tesla Motors unveiled a home-battery system: the Powerwall. The compact wall-mountable unit is based on lithium-ion cells similar to those that Tesla uses in its Model S sedan. Tesla's goal is to make the battery system affordable as well as easy to install, operate, and maintain in comparison with competing systems.

A major attraction of the Powerwall is its low price. A $3,500 occasional-use unit provides 10 kWh of capacity, which is enough to run an average US home for about half a day during an outage. Another $3,000 frequent-use unit can provide 7 kWh of capacity to offset demand peaks or provide nighttime power to solar-system owners. Although still expensive for many mainstream consumers, Powerwall is inexpensive relative to other advanced-battery systems and takes up far less space than a similarly priced lead-acid-battery solution. Powerwall's pricing does not include installation and the cost of the DC-AC inverter that one would need in order to use the system to power a home. But Tesla partner SolarCity and other solar-installation firms plan to sell or lease the Powerwall as part of a solar-plus-battery package, which would include an inverter and other necessary hardware.

Multiple Powerwall systems can connect together to provide larger capacity for homes and businesses. Businesses in particular could reduce their energy bills significantly by using stored grid or solar electricity during periods of peak energy demand. Tesla has also announced a much larger battery pack—the 100 kWh Powerpack—that can provide industrial and utility power loads at prices as low as $250 per kWh.

Implications

The market for distributed battery storage is growing as costs continue to decline. Solar-plus-battery systems could see a huge growth trajectory in the next ten years, and Tesla could quickly become a leader in stationary-power markets if growth does occur. In particular, Tesla is establishing a low-cost and high-quality Li-ion-battery supply chain that includes the $5 billion "gigafactory" it is building in Nevada with Panasonic.

Tesla's entry still represents a gamble on relatively unproven demand from the residential market, which includes many customers that can rely on utilities' net metering plans (at least while most utilities continue to offer such plans) to offset the costs of distributed solar power. Indeed, SolarCity is offering the occasional-use 10 kWh Powerwall to its customers only because daily battery use does not offer significant financial benefits to most of its grid-connected customers. Furthermore, despite its low price, the Powerwall may still be less economically attractive than older backup technologies such as generators. Nevertheless, the Powerwall apparently sold out (until mid-2016) within days of its announcement, demonstrating strong demand despite the fact that the Powerwall may not be as cost-effective as grid or generator backup for small applications such as homes.

Impacts/Disruptions

The introduction of cost-competitive and consumer-friendly battery systems could accelerate a shift in which people become producers and consumers of electric power. Utilities are also using more battery storage, in part to integrate growing shares of intermittent renewable power, but they will see increasing disruption as their customers use storage to go off grid for much (or all) of the time. Overall effects on the energy-storage and portable-power market will likely include both higher supply and demand for Li-ion batteries and lower prices as production volumes continue to increase.

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